Spinoffs

Often, the parent company starts by selling a portion of the new company to the public, to establish a market and a following among investors. That way, by the time of the spin-off, stock in the new company may be liquid enough to be sold relatively easily, or retained with some confidence as a worthwhile investment.

In our experience, and in most academic studies of the subject, this helps the parent and its corporate spinoff. Both generally do better than comparable companies for at least several years after the spinoff takes place.

When a company carries out a spinoff, it sets up one of its subsidiaries or divisions as a separate company, then hands out shares in the new company to its own shareholders. It may hand out the shares as a special dividend, or give its shareholders an opportunity to swap shares of the parent company for the shares of the newly established spinoff.

Study after study has shown that after an initial adjustment period of a few months, stock spinoffs tend to outperform groups of comparable stocks for several years. (For that matter, the parent companies also tend to outperform comparable firms for several years after a spinoff.) The above-average performance of spinoffs makes sense for a couple of reasons.

First, company managers naturally prefer to acquire or expand their assets, not get rid of them. Getting rid of assets reduces a company’s total potential profit. The management of a parent company will only hand out a subsidiary to its own investors if it’s nearly certain that the subsidiary, and the parent, will be better off after the spinoff than before.

Second, spinoffs involve a lot of work and legal fees. Companies only have an incentive to do spinoffs under two sets of favourable conditions: When they feel it isn’t a good time to sell (which often means it’s a good time to buy); or, when they feel the assets they plan to spin off will be worth substantially more in the future, possibly within a few years.

Quite often, a big company will spin off a small subsidiary because it feels the subsidiary is a tiny gem, but that it’s too small to make an impact on the much larger financial statements and market capitalization of the parent.

At TSI Network we’ve had great success with a number of spun off stocks over the years. That’s especially true of the many spinoffs we have recommended that have gone up after they began trading, and have later attracted a takeover bid at a substantial premium over the market price.

Needless to say, things don’t always work out this well. Spinoffs and their parents do sometimes run into unforeseeable woes. But on the whole, in investing, spinoffs are the closest thing you can find to a sure thing.

See how you can make the most of these special investment opportunities by reading our special free report Spinoff Stock Investigator: All You Need to Know about Reaping the Rewards of Spinoffs.

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Spinoffs Library Archives
Danaher has completed three separate spinoffs in the past few years: industrial-products maker Fortive Corp. (New York symbol FTV) in July 2016; dental equipment specialist Envista Holdings Corp. (New York symbol NVST) in September 2019; and water quality and product identification leader Veralto Corp....
PARKLAND CORP. $40 is a hold. The company (Toronto symbol PKI; Consumer sector; Shares outstanding: 174.4 million; Market cap: $7.0 billion; Dividend yield: 3.6%; Takeover Target Rating: Highest; www.parkland.ca) is a Calgary-based marketer, distributor, and refiner of fuel and petroleum products in Canada, the U.S....
These two firms have reached new deals with activists, including giving them greater board representation. While that improves their outlook, we prefer Autodesk for your new buying.


HOWARD HUGHES HOLDINGS INC. $71 is a hold. The company (New York symbol HHH; Manufacturing sector; Shares outstanding: 50.4 million; Market cap: $3.6 billion; No dividend paid; Takeover Target Rating: Medium; www.howardhughes.com) was originally part of billionaire businessman Howard Hughes’ real estate holdings....
S&P GLOBAL INC. $512 is hold. The company (New York symbol SPGI; Finance sector; Shares outstanding: 306.7 million; Market cap: $157.0 billion; Dividend yield: 0.8%; Takeover Target Rating: Medium; www.spglobal.com) provides a wide variety of financial information products, including credit ratings, mainly to banks, insurance providers and other financial firms....
IAC has a long history of buying smaller Internet-based businesses and spinning them off once they reach a certain size. Recent examples include video software maker Vimeo Inc. (Nasdaq symbol VMEO) and online dating platform Match Group Inc. (Nasdaq symbol MTCH)....
Honeywell makes most of its products in the very markets it is selling them to. Even so, it expects new tariffs in the U.S. and other countries will cost it $500 million in 2025.


To offset that, Honeywell will increase some prices and find alternatives for various inputs....
MCKESSON CORP. $682 is a buy for aggressive investors. The company (New York symbol MCK; Consumer sector; Shares outstanding: 125.1 million; Market cap: $85.3 billion; Dividend yield: 0.4%; Takeover Target Rating: Medium; www.mckesson.com) is the largest wholesale drug distributor in the U.S....
Shares of the new DuPont are up over 50% in the five years since the old DowDuPont conglomerate split into three separate companies (Dow, DuPont and Corteva).

Even so, DuPont feels it can generate even more value for investors with a plan to spin off its electronics product operations....

You Can See Our Spinoff Stock Portfolio For May 2025 Here.


Why we like spinoffs so much
We think that spinoffs are the closest thing you can find to a sure thing for two main reasons:


1) The management of a parent company will only hand out shares in a subsidiary to its own investors if it’s all but certain that business, and the parent, will be better off after the spinoff.


2) Spinoffs involve a lot of work and legal fees....
FATPIPE INC. $7.42 is a hold. The company (Nasdaq symbol FATN; Manufacturing sector; Shares outstanding: 13.7 million; Market cap: $101.7 million; No dividends paid; Takeover Target Rating: Lowest; www.fatpipeinc.com) makes software that monitors and protects data traffic in local and cloud-based computer networks....